<PAGE> 1
KEMPER TARGET EQUITY FUND
KEMPER WORLDWIDE 2004 FUND
REPORT TO SHAREHOLDERS FOR THE MONTH ENDED JULY 31, 1997
AND FOR THE YEAR ENDED JUNE 30, 1997
PROVIDES A GUARANTEED RETURN OF INVESTMENT ON THE DESIGNATED MATURITY
DATE TO INVESTORS WHO REINVEST ALL DIVIDENDS AND HOLD THEIR SHARES TO
MATURITY DATE, AND SEEKS TO PROVIDE A TOTAL RETURN, A COMBINATION OF
CAPITAL GROWTH AND INCOME
" . . . Our concentration on highly-
focused, growth-oriented companies in the European
equity markets helped us
achieve consistent returns . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Country Concentrations
10
Largest Stock Holdings
11
Portfolio of Investments
19
Report of Independent Auditors
20
Financial Statements
22
Notes to Financial Statements
26
Financial Highlights
AT A GLANCE
- ------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004
FUND TOTAL RETURN*
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1997 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
KEMPER WORLDWIDE 2004 FUND 17.77%
- ------------------------------------------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the
period noted, securities prices fluctuated. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
7/31/97 7/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER WORLDWIDE 2004 FUND $11.60 $10.42
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED JULY 31, 1997, KEMPER WORLDWIDE 2004 FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
INCOME LONG-TERM
DIVIDEND CAPITAL GAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER WORLDWIDE 2004 FUND $0.44 $0.16
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
STYLE
VALUE BLEND GROWTH
SIZE
/ / /X/ / / LARGE
/ / / / / / MEDIUM
/ / / / / / SMALL
Source: Morningstar, Inc., Chicago (312) 696-6000. (Morningstar Style Box is
based on a portfolio date as of July 31, 1997.) The Equity funds Style Box
placement is based on a fund's price-to-earnings and price-to-book ratio
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk
and do not represent future performance. Please consult the prospectus for a
description of investment policies.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
A self-regulating economy, a balanced budget agreement and a positive stock
market all have contributed to another excellent year for investors. Given the
extended length of today's bull market (which celebrated its 15th anniversary on
August 12), it is prudent to wonder whether the end is near. Our position is
that while there is a certain precariousness to today's environment, which we
will elaborate on below, we see little to suggest that there will be more than
occasional market corrections.
Bipartisan agreement to balance the federal budget by the year 2002 represents
significant progress that should benefit investors over the long term. By
reducing the burden of capital gains and eliminating certain tax loopholes, the
Taxpayer Relief Act of 1997 and the Balanced Budget Act of 1997 have the
potential to meaningfully affect behavior. Now that the ceiling has been raised
on capital gains from the sale of a home, empty nesters will be more inclined to
move out of homes and into smaller condominiums. Added investment and savings
options should help boost the country's sagging savings rate. From a social
perspective, government's action to widen the difference between the taxation
rate on capital gains and on income reflects a conscious effort to encourage
capital investment. The more people and businesses can do for themselves, the
less likely they are to rely on the government, which should help restrain
federal spending.
The maximum tax on long-term capital gains is now 20 percent versus a maximum
of approximately 40 percent on ordinary income earned by Americans in the
highest income tax brackets. This dramatic difference could have some influence
on the management of mutual funds in the future. Although few investment
decisions are based on their tax consequences, the legislation supports a "buy
and hold" approach to investing, by which a mutual fund generates investment
returns through gains on investments held 18 months or longer. Such gains are
taxed at the reduced capital gains rate. On the margin, portfolio managers
should focus on long-term investing -- the strategy that we have always
supported.
In addition, mutual funds will gain investment flexibility with the new law's
repeal of what has been called the "short/short rule." Previously, investment
companies had been subject to a 30 percent limitation on total income arising
from the sale of securities held less than three months -- or face severe tax
consequences. The lifting of this limitation provides newer funds, in
particular, with much needed maneuvering ability.
You can expect to hear more from Kemper about the implications of the new
legislation, and specifically about the tax reporting changes, over the next
several weeks and months. Overall, we believe that this legislation is something
the country can be proud of. It represents years of a commitment on the part of
the federal government to hold spending in check and refrain from creating new
programs. Expanding corporate revenues and profits in an extended period of low
inflation also contributed to making this investor-friendly environment
possible.
As we look toward the end of the year, we see little to trouble us. The
economy appears to be in excellent condition. Continuing the alternatingly
fast/slow pace that we have experienced for several months, the fast-growing
first quarter was followed by a slower second quarter. Such self-regulation has
minimized any need for the Federal Reserve Board to raise interest rates again.
We don't rule out the possibility of another hike in the fourth quarter,
however.
Inflation is very low. In spite of unemployment being the lowest we have seen
in decades, wage pressures are still manageable. For example, the United Parcel
Service strike and the earlier steel and airlines work actions represent the
most union activity we have seen in 10 years. Encouraged by the low unemployment
(and therefore high demand for workers), the unions are becoming bolder but in
the end seem ready to resolve disputes sensibly. As a consequence, wage
increases remain moderate.
3
<PAGE> 4
ECONOMIC OVERVIEW
- -------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- -------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (07/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.22 6.42 6.64 6.49
PRIME RATE(2) 8.5 8.25 8.25 8.75
INFLATION RATE(3) 2.23 3.03 2.88 2.62
THE U.S. DOLLAR(4) 7.32 7.67 4.26 -4.11
CAPITAL GOODS ORDERS(5)* 7.11 3.61 16.26 1.75
INDUSTRIAL PRODUCTION(5)* 3.84 4.84 3.38 2.36
EMPLOYMENT GROWTH(6) 2.24 2.2 2.14 2.42
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
Source: Economics Department, Zurich Kemper Investments, Inc.
* Data as of June 30, 1997.
Our primary concern is the very high valuations of the stock market. All
things considered, it is difficult to see where we can go from here. With prices
at such heady levels, the market can be expected to react negatively to even
minor earnings disappointments, as we have seen in August. Kemper's response to
this market is to remain fully invested and to reduce exposure by diversifying
across a wider group of investment opportunities. Research, the first step in
stock selection, is key in this kind of a market.
Bond markets are obviously cheered by recent events, and prospects for income
investors continue to be positive. Interest rates are stable and credit quality
has not been an issue. A dwindling supply of municipal bonds has enabled
municipal investments to outperform U.S. Treasuries.
In such a fully valued domestic market, it can make sense to look to
international markets for their growth potential. The strength of the dollar
thus far this year has diminished returns but international opportunities look
bright.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
August 14, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[FERRO PHOTO]
DENNIS FERRO JOINED KEMPER IN 1994 AND IS MANAGING DIRECTOR OF ZURICH INVESTMENT
MANAGEMENT LIMITED, A LONDON-BASED AFFILIATE OF ZURICH KEMPER INVESTMENTS, INC.
HE IS ALSO PORTFOLIO MANAGER OF KEMPER WORLDWIDE 2004 FUND. FERRO HOLDS AN
M.B.A. IN FINANCE FROM ST. JOHN'S UNIVERSITY IN NEW YORK AND A BACHELOR'S DEGREE
FROM VILLANOVA UNIVERSITY IN PENNSYLVANIA. HE IS A CHARTERED FINANCIAL ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED
ON MARKET AND OTHER CONDITIONS.
PORTFOLIO MANAGER DENNIS FERRO DISCUSSES THE INTERNATIONAL MARKETS AND THE
APPROACH HIS TEAM TOOK IN MANAGING KEMPER WORLDWIDE 2004 FUND.
Q WHAT STEPS DID YOU AND YOUR TEAM TAKE IN MANAGING THE EQUITY PORTION OF
THE FUND DURING THE YEAR?
A Our concentration on highly-focused, growth-oriented companies in the
European equity markets helped us achieve consistent returns. Low inflation, low
interest rates and moderate growth -- combined with benefits the export sector
experienced due to the dollar strength -- created a very positive investment
environment.
We also limited our exposure to Japan. The holdings we had in this market
focused on globally competitive companies that do significant exporting to other
world markets and have higher than average profit margins on unique products or
services. Technology and auto companies are two industries we focused on that
met these criteria.
We modestly reduced our position in Southeast Asia, trimming our exposure
across the region and maintaining a zero weighting in Thailand. The money pulled
from these struggling markets was then used to increase the exposure to
companies in Europe and Latin America.
Q HOW DID THE DIFFERENT WORLD MARKETS PERFORM?
A International markets outside of Japan did well with European and Latin
American markets leading performance overall. Nearly all European markets had
strong returns on a local currency basis. However, the U.S. dollar has been
fairly strong throughout the year which weakened local returns when converted
back to dollars.
Latin American markets were also strong during the period. Mexico, for
example, was up 63.2 percent in local terms for the year and 58.4 percent in
U.S. dollars. Conversely, Asian markets lagged both in local currency and U.S.
dollars. The Hang Seng Index of Hong Kong did have a positive return -- unlike
the other Southeast Asian markets -- up 53.0 percent in U.S. dollar terms.
Q THE FUND HAS BEEN HEDGED MORE THAN 25 PERCENT THROUGHOUT THE PERIOD. CAN
YOU EXPLAIN YOUR HEDGING PHILOSOPHY?
A Our philosophy on hedging is purely defensive. We examine several economic
indicators and long-term trends. If our analysis leads us to believe the U.S.
dollar is dramatically undervalued relative to a foreign currency, we will take
steps to offset the depreciation of the foreign currency as we did during this
period. Our normal posture, however, would be unhedged.
Q WHICH INDUSTRIES DID YOU FAVOR WHEN SELECTING HOLDINGS FOR THE FUND?
A We continued to focus on the pharmaceutical sector in Europe. Novartis
(Switzerland),
5
<PAGE> 6
PERFORMANCE UPDATE
Roche Holding A.G. (Switzerland) and Glaxo Wellcome (UK) are holdings we have in
this sector. Financial stocks in Europe were another focus because they
benefited from the modest interest rate environment. We looked for companies in
this sector that had specific market strategies in certain product areas such as
pension services or other types of saving services for individuals. ABN AMRO
(Netherlands) and Banco Bilboa Vizcaya (Spain) were among our financial
holdings.
In Japan we favored technology companies such as Sony and Ricoh. In Hong
Kong we focused on financials such as HSBC Holdings, and broad-based
conglomerates like CITIC Pacific. Real estate is also a thriving sector in this
market with names like Cheung Kong Holdings offering good returns.
In Canada our choices were very name-specific. Canadian National Railway
was a position we held during much of the period before taking profits. It is
one of the major railway companies in Canada and has been generating increased
operating efficiencies and is improving profitability.
In Latin America the exposure has primarily been in Mexico where we
owned Tubos de Acero de Mexico. This pipeline manufacturing company benefited
from increased capital expenditure by Pemex, the national oil company.
Q IN MARCH THE FEDERAL RESERVE BOARD MOVED TO RAISE U.S. INTEREST RATES BY 25
BASIS POINTS. WHAT AFFECT DID THIS HAVE ON THE ZERO-COUPON BOND COMPONENT OF THE
FUND?
A Zero-coupon bonds are very sensitive to movements in rates and when the
rates increase, the value of the bonds decrease. Therefore, the rate increase
did drag down the fund's performance for a time. Rates did come down later in
the period due to improved inflation. This led to a rally in the bond market.
Q YOU MENTIONED LIMITING YOUR EXPOSURE TO JAPAN. WHAT ARE YOUR VIEWS ON THIS
MARKET AND WHERE DO YOU SEE IT GOING FROM HERE?
A Our lowest exposure to this market was about 15 percent during the period.
That compares to an index weighting of over 29 percent. During visits our
analysts have made to Japan to meet with individual company management, we've
found a somewhat higher degree of optimism and indications that business is
stronger than the general economic forecasts would lead people to believe. From
a bottom-up standpoint companies seem to be doing better and operating at higher
levels than forecasters are suggesting. We expect the industrial sector of the
economy to be firm and to deliver strong earnings growth. However, many large
segments of the market, such as financials and domestic cyclicals, remain
unattractive to us.
Q WERE THERE ANY OPPORTUNITIES THAT YOU MISSED DURING THE YEAR?
A We might have done well to have had even less exposure to Japan. Although
the companies we own there did do well relative to the market, the market did
underperform most other world markets so there was some opportunity lost. But,
on the flip side, our decision to reduce the exposure to Southeast Asia proved
to be a good one as these markets were down significantly.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We remain positive on world equity markets while being very aware that they
have a heightened sensitivity to U.S. interest rates. When adjustments were made
in the U.S. in the first quarter of this year, overseas markets had a
short-term, negative reaction. With the exception of the UK, we do not see signs
of enough inflation to lead to rate hikes in international markets. Our
weightings will continue to favor Europe. We are moving modestly higher in Japan
and continue to underweight Southeast Asia. The focus in Latin America will
remain on Mexico with smaller positions in Peru and Brazil.
Our expectation is that the dollar has probably seen most of its move and
will eventually trade in a fairly tight range which would be consistent with the
G7* objective of having greater currency stability.
* A group of major industrialized countries that try to coordinate monetary and
fiscal policies to create a more stable world economic system.
ABOUT YOUR REPORT
CHANGE IN FISCAL YEAR
The fiscal year end for Kemper Worldwide 2004 Fund has been changed to July
31 from June 30. Therefore, this report contains information about the fund
covering the 13-month period ended July 31, 1997. Your next shareholder report
will be a semiannual report dated January 31.
7
<PAGE> 8
KEMPER WORLDWIDE 2004 FUND
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended July 31, 1997 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER WORLDWIDE 2004 FUND 11.86% 9.88% (since 5/3/94)
- ------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER WORLDWIDE 2004 FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/3/94 12/31/95 12/31/96 7/31/97
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Worldwide 2004 Fund(1) 10000 11642 12339 13580
Europe-Australasia-Far Index (EAFE)+ 10000 11164 11874 13440
Lehman Brothers Government/Corporate Bond Index++ 10000 11977 12325 13050
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends.
Average annual total return reflects annualized change. During the periods
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge of 5.0%. When comparing Kemper Worldwide 2004 Fund to
EAFE Index+ and the Lehman Brothers Gov't./Corp. Bond Index++ you should
note that the fund's performance reflects the maximum sales charge, while
no such charges are reflected in the performance of the indices.
+ The EAFE Index (Morgan Stanley Capital International Europe, Australasia,
Far East Index) is an unmanaged index generally accepted as a benchmark for
major overseas markets. Source is Towers Data Systems.
++ The Lehman Brothers Government/ Corporate Bond Index is an unmanaged index
comprised of intermediate and long-term government and investment grade
corporate debt securities. Source is Towers Data Systems.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S COMMON STOCK GEOGRAPHIC DISTRIBUTION
COMMON STOCKS COMPRISE 35.7% OF THE PORTFOLIO AND THE REMAINDER IS INVESTED IN
ZERO-COUPON BONDS AND MONEY MARKET INSTRUMENTS ON JULY 31, 1997.
[COUNTRY CONCENTRATIONS GRAPH]
<TABLE>
<S> <C>
JAPAN 21.9%
UNITED KINGDOM 14.0%
SWITZERLAND 12.5%
NETHERLANDS 11.7%
FRANCE 8.1%
IRELAND 7.1%
HONG KONG 5.5%
SPAIN 4.7%
GERMANY 4.0%
MEXICO 1.9%
OTHER* 8.6%
</TABLE>
*PLEASE SEE PAGE 11 FOR A COMPLETE LISTING.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 20 LARGEST STOCK HOLDINGS
REPRESENTING 60.6% OF THE FUND'S TOTAL COMMON STOCK ON JULY 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
1. NOVARTIS 5.0%
SWITZERLAND
- --------------------------------------------------------------------------------------------------------
2. AEGON N.V. 4.4%
NETHERLANDS
- --------------------------------------------------------------------------------------------------------
3. ELF AQUITAINE 4.0%
FRANCE
- --------------------------------------------------------------------------------------------------------
4. CIBA SPECIALTY CHEMICALS 4.0%
SWITZERLAND
- --------------------------------------------------------------------------------------------------------
5. RICOH CO. 3.5%
JAPAN
- --------------------------------------------------------------------------------------------------------
6. BANK OF IRELAND 3.4%
IRELAND
- --------------------------------------------------------------------------------------------------------
7. ROCHE HOLDING 3.4%
SWITZERLAND
- --------------------------------------------------------------------------------------------------------
8. BARCLAYS PLC 3.4%
UNITED KINGDOM
- --------------------------------------------------------------------------------------------------------
9. SONY CORP. 3.1%
JAPAN
- --------------------------------------------------------------------------------------------------------
10. INDEPENDENT NEWSPAPERS PLC 2.9%
IRELAND
- --------------------------------------------------------------------------------------------------------
11. RENTOKIL INITIAL PLC 2.8%
UNITED KINGDOM
- --------------------------------------------------------------------------------------------------------
12. CANON 2.8%
JAPAN
- --------------------------------------------------------------------------------------------------------
13. GLAXO WELLCOME 2.6%
UNITED KINGDOM
- --------------------------------------------------------------------------------------------------------
14. CARREFOUR S.A. 2.4%
FRANCE
- --------------------------------------------------------------------------------------------------------
15. TELECOM ITALIA MOBILE 2.4%
ITALY
- --------------------------------------------------------------------------------------------------------
16. BAYER A.G. 2.3%
GERMANY
- --------------------------------------------------------------------------------------------------------
17. L.M. ERICSSON TELEPHONE CO. 2.3%
SWEDEN
- --------------------------------------------------------------------------------------------------------
18. KONINKLIJKE AHOLD N.V. 2.0%
NETHERLANDS
- --------------------------------------------------------------------------------------------------------
19. FUJI PHOTO FILM CO. 2.0%
JAPAN
- --------------------------------------------------------------------------------------------------------
20. CEMENTOS MEXICANOS, S.A. 1.9%
MEXICO
- --------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JULY 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--59.4% (Cost: $19,329) $32,800 $21,210
-----------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------
United Kingdom--5.1% Barclays PLC
BANKING 20,358 429
Rentokil Initial PLC
SERVICES COMPANY 100,000 356
Glaxo Wellcome
PHARMACEUTICAL COMPANY 15,751 333
Prudential Corp. PLC
FINANCIAL SERVICES/LIFE INSURANCE COMPANY 20,000 191
BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 30,974 173
Reed International PLC
PUBLISHER 15,748 158
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 56,250 144
----------------------------------------------------------------------
1,784
- ---------------------------------------------------------------------------------------------------------------
Switzerland--4.4% Novartis
PHARMACEUTICAL COMPANY 400 643
Ciba Specialty Chemicals
CHEMICAL PRODUCER 5,544 511
Roche Holding A.G.
PHARMACEUTICAL COMPANY 45 435
---------------------------------------------------------------------
1,589
- --------------------------------------------------------------------------------------------------------------
Netherlands--4.2% Aegon N.V.
INSURANCE COMPANY 7,355 559
Koninklijke Ahold N.V.
FOOD RETAILER 8,982 260
Royal Dutch Petroleum
PETROLEUM PRODUCER 3,880 218
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 5,865 166
IHC Caland N.V.
ENGINEERING SERVICES COMPANY 2,885 156
De Boer Unigro
FOOD RETAILER 3,700 132
---------------------------------------------------------------------
1,491
- --------------------------------------------------------------------------------------------------------------
France--2.9% Elf Aquitaine
OIL AND GAS PRODUCER 4,500 514
Carrefour S.A.
FOOD RETAILER 450 304
Technip S.A.
ENGINEERING COMPANY 1,741 220
---------------------------------------------------------------------
1,038
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ireland--2.5% Bank of Ireland
BANKING 35,636 $ 436
Independent Newspapers PLC
PUBLISHER 60,436 366
Greencore Group PLC
FOOD PRODUCER 20,900 100
------------------------------------------------------------------------
902
- -----------------------------------------------------------------------------------------------------------------
Spain--1.7% Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 10,800 223
Prosegur, Cia de Seguridad S.A.
SECURITY SERVICES 14,500 167
Banco Bilbao Vizcaya
BANKING 5,844 153
Banco Santander, S.A.
BANKING 1,950 54
------------------------------------------------------------------------
597
- -----------------------------------------------------------------------------------------------------------------
Germany--1.4% Bayer A.G.
CHEMICAL COMPANY 7,000 295
Veba, A.G.
ELECTRIC UTILITY 2,250 131
Mannesmann A.G.
CAPITAL GOODS PRODUCER/
MOBILE TELECOMMUNICATIONS OPERATOR 170 79
------------------------------------------------------------------------
505
- -----------------------------------------------------------------------------------------------------------------
Italy--1.3% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 304
Bulgari SpA
LUXURY GOODS MANUFACTURER 28,000 159
------------------------------------------------------------------------
463
- -----------------------------------------------------------------------------------------------------------------
Sweden--1.0% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 6,452 291
Skandia Forsak
FINANCIAL SERVICES COMPANY 1,900 77
------------------------------------------------------------------------
368
------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--24.5% 8,737
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PACIFIC REGION
- ----------------------------------------------------------------------------------------------------------------
Japan--7.8% Ricoh Co. Ltd.
PRECISION INSTRUMENTS MANUFACTURER 29,000 $ 448
Sony Corp.
ELECTRONICS MANUFACTURER 3,900 389
Canon Inc.
PRECISION INSTRUMENTS MANUFACTURER 11,000 351
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 6,000 252
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 7,000 234
Toray Industries
TEXTILE MANUFACTURER 31,000 204
Noritsu Koki Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 4,000 186
Shohkoh Fund & Co., Ltd.
FINANCING COMPANY 600 178
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 2,000 159
Bellsystem 24, Inc.
TELEMARKETING FIRM 1,000 155
Circle K Japan
CONVENIENCE RETAILER 2,400 141
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 2,000 94
-----------------------------------------------------------------------
2,791
- ----------------------------------------------------------------------------------------------------------------
Hong Kong--2.0% CITIC Pacific Ltd.
CONGLOMERATE 31,000 197
HSBC Holdings PLC
BANKING 5,349 186
Henderson Land Development Co., Ltd.
PROPERTY DEVELOPMENT 12,000 117
Hutchison Whampoa Ltd.
CONGLOMERATE 11,000 107
Cheung Kong Holdings Ltd.
REAL ESTATE 9,000 100
-----------------------------------------------------------------------
707
- ----------------------------------------------------------------------------------------------------------------
Singapore--.3% Development Bank of Singapore
BANKING 5,000 65
City Developments Ltd.
PROPERTY DEVELOPMENT 6,000 51
-----------------------------------------------------------------------
116
- ----------------------------------------------------------------------------------------------------------------
Malaysia--.2% Malayan Bank Berhad
BANKING 7,000 66
-----------------------------------------------------------------------
TOTAL PACIFIC REGION--10.3% 3,680
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMONWEALTH COUNTRIES
- -----------------------------------------------------------------------------------------------------------------
Canada--.2% Hudson's Bay Co.
RETAIL 3,650 $ 82
- -----------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- -----------------------------------------------------------------------------------------------------------------
Mexico--.7% Cementos Mexicanos, S.A. de C.V., "B"
CEMENT PRODUCER 44,500 247
------------------------------------------------------------------------
TOTAL COMMON STOCKS--35.7%
(Cost: $8,949) $12,746
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.40%
INSTRUMENTS--3.9% Due--August and September 1997
(Cost: $1,394) 1,400 1,394
------------------------------------------------------------------------
TOTAL INVESTMENTS--99.0%
(Cost: $29,672) 35,350
------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.0% 375
------------------------------------------------------------------------
NET ASSETS--100% $35,725
------------------------------------------------------------------------
</TABLE>
At July 31, 1997, the Fund's portfolio of
investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
--------------------------------------------------------------------------
<S> <C> <C>
Finance $ 2,966 8.4
--------------------------------------------------------------------------
Consumer Cyclicals 2,334 6.6
--------------------------------------------------------------------------
Technology 1,622 4.5
--------------------------------------------------------------------------
Health Care 1,555 4.4
--------------------------------------------------------------------------
Basic Industries 1,257 3.5
--------------------------------------------------------------------------
Capital Goods 1,218 3.4
--------------------------------------------------------------------------
Energy 732 2.0
--------------------------------------------------------------------------
Utilities 658 1.8
--------------------------------------------------------------------------
Consumer Staples 404 1.1
--------------------------------------------------------------------------
TOTAL COMMON STOCKS 12,746 35.7
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 21,210 59.4
--------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS AND OTHER NET ASSETS 1,769 4.9
--------------------------------------------------------------------------
NET ASSETS $35,725 100.0
--------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $29,672,000 for federal income tax purposes
at July 31, 1997, the gross unrealized appreciation was $5,779,000, the gross
unrealized depreciation was $101,000 and the net unrealized appreciation on
investments was $5,678,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
KEMPER WORLDWIDE 2004 FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury, zero coupon, 2004
OBLIGATIONS--60.1% (Cost: $19,736) $33,700 $20,880
---------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
- --------------------------------------------------------------------------------------------------------------------
Netherlands--5.8% Aegon N.V.
INSURANCE COMPANY 7,355 514
(a)Baan Company N.V.
SERVICE SOFTWARE APPLICATIONS 4,100 278
Koninklijke Ahold N.V.
FOOD RETAILER 2,994 253
Gucci Group N.V.
LUXURY GOODS MANUFACTURER 3,450 225
Royal Dutch Petroleum
PETROLEUM PRODUCER 3,880 202
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 5,865 179
IHC Caland N.V.
ENGINEERING SERVICES COMPANY 2,840 156
De Boer Unigro
FOOD RETAILER 3,700 131
GTI Holding
ENGINEERING SERVICES COMPANY 4,100 90
---------------------------------------------------------------------------
2,028
- --------------------------------------------------------------------------------------------------------------------
United Kingdom--5.3% Barclays PLC
BANKING 20,358 404
Rentokil Initial PLC
SERVICES COMPANY 100,000 351
Glaxo Wellcome
PHARMACEUTICAL COMPANY 15,751 325
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 56,250 213
Prudential Corp. PLC
FINANCIAL SERVICES/LIFE INSURANCE COMPANY 20,000 194
BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 30,974 183
Reed International PLC
PUBLISHER 15,748 153
---------------------------------------------------------------------------
1,823
- --------------------------------------------------------------------------------------------------------------------
Switzerland--4.5% Novartis
PHARMACEUTICAL COMPANY 400 640
Ciba Specialty Chemicals
CHEMICAL PRODUCER 5,544 513
Roche Holding A.G.
PHARMACEUTICAL COMPANY 45 408
---------------------------------------------------------------------------
1,561
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
France--2.9% Elf Aquitaine
OIL AND GAS PRODUCER 4,500 $ 486
Carrefour S.A.
FOOD RETAILER 450 327
Technip S.A.
ENGINEERING COMPANY 1,741 202
-------------------------------------------------------------------------
1,015
- ------------------------------------------------------------------------------------------------------------------
Ireland--2.4% Bank of Ireland
BANKING 35,078 385
Independent Newspapers PLC
PUBLISHER 60,436 351
Greencore Group PLC
FOOD PRODUCER 20,900 104
-------------------------------------------------------------------------
840
- ------------------------------------------------------------------------------------------------------------------
Spain--1.8% Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 2,700 227
Prosegur, Cia de Seguridad S.A.
SECURITY SERVICES 14,500 177
Banco Bilbao Vizcaya
BANKING 1,948 159
Banco Santander, S.A.
BANKING 1,950 60
-------------------------------------------------------------------------
623
- ------------------------------------------------------------------------------------------------------------------
Germany--1.4% Bayer A.G.
CHEMICAL COMPANY 7,000 269
Veba, A.G.
ELECTRIC UTILITY 2,250 127
Mannesmann A.G.
CAPITAL GOODS PRODUCER/
MOBILE TELECOMMUNICATIONS OPERATOR 170 76
-------------------------------------------------------------------------
472
- ------------------------------------------------------------------------------------------------------------------
Italy--1.3% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 90,000 291
Bulgari SpA
LUXURY GOODS MANUFACTURER 28,000 158
-------------------------------------------------------------------------
449
- ------------------------------------------------------------------------------------------------------------------
Sweden--.7% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 6,452 254
-------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--26.1% 9,065
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PACIFIC REGION
- --------------------------------------------------------------------------------------------------------------------
Japan--7.5% Sony Corp.
ELECTRONICS MANUFACTURER 3,900 $ 340
Canon Inc.
PRECISION INSTRUMENTS MANUFACTURER 11,000 300
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 6,000 242
Toray Industries
TEXTILE MANUFACTURER 31,000 221
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 7,000 211
Daifuku Co., Ltd.
DIVERSIFIED MACHINERY MANUFACTURER 15,000 198
Noritsu Koki Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 4,000 198
Ricoh Co. Ltd.
PRECISION INSTRUMENTS MANUFACTURER 14,000 184
Shohkoh Fund & Co., Ltd.
FINANCING COMPANY 600 182
Eisai Co., Ltd.
PHARMACEUTICAL COMPANY 8,000 152
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 2,000 151
Circle K Japan
CONVENIENCE RETAILER 2,400 138
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 2,000 80
---------------------------------------------------------------------------
2,597
- --------------------------------------------------------------------------------------------------------------------
Hong Kong--1.6% CITIC Pacific Ltd.
CONGLOMERATE 31,000 194
HSBC Holdings PLC
BANKING 5,349 161
Hutchison Whampoa Ltd.
CONGLOMERATE 11,000 95
Cheung Kong Holdings Ltd.
REAL ESTATE 9,000 89
---------------------------------------------------------------------------
539
- --------------------------------------------------------------------------------------------------------------------
Malaysia--.5% RHB Capital
BANKING 30,000 95
Magnum Corporation Berhad
ENTERTAINMENT AND GAMING 51,000 77
Hume Industries Bhd
CONSTRUCTION MATERIAL MANUFACTURER 6,000 27
---------------------------------------------------------------------------
199
- --------------------------------------------------------------------------------------------------------------------
Singapore--.5% Development Bank of Singapore
BANKING 5,000 63
Cycle & Carriage Ltd.
AUTOMOBILE SALES AND DISTRIBUTION 6,000 62
DBS Land Ltd.
PROPERTY INVESTMENT 18,000 57
---------------------------------------------------------------------------
182
---------------------------------------------------------------------------
TOTAL PACIFIC REGION--10.1% 3,517
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canada--.2% Hudson's Bay Co.
RETAIL 3,650 $ 82
- --------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- --------------------------------------------------------------------------------------------------------------------
Mexico--1.5% (a)Tubos de Acero de Mexico, S.A., ADR
STEEL MANUFACTURER 16,200 299
Cementos Mexicanos, S.A. de C.V., "B"
CEMENT PRODUCER 44,500 215
---------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--1.5% 514
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--37.9%
(Cost: $9,595) 13,178
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.0%
(Cost: $29,331) 34,058
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.0% 708
---------------------------------------------------------------------------
NET ASSETS--100% $34,766
---------------------------------------------------------------------------
</TABLE>
At June 30, 1997, the Fund's portfolio of investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
----------------------------------------------------------------------------
<S> <C> <C>
Finance $ 2,652 7.6
----------------------------------------------------------------------------
Consumer Cyclicals 2,326 6.7
----------------------------------------------------------------------------
Health Care 1,738 5.0
----------------------------------------------------------------------------
Basic Industries 1,544 4.4
----------------------------------------------------------------------------
Technology 1,536 4.4
----------------------------------------------------------------------------
Capital Goods 1,467 4.2
----------------------------------------------------------------------------
Energy 688 2.0
----------------------------------------------------------------------------
Utilities 645 1.9
----------------------------------------------------------------------------
Consumer Staples 582 1.7
----------------------------------------------------------------------------
TOTAL COMMON STOCKS 13,178 37.9
----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 20,880 60.1
----------------------------------------------------------------------------
OTHER NET ASSETS 708 2.0
----------------------------------------------------------------------------
NET ASSETS $34,766 100.0
----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $29,331,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $4,807,000, the gross
unrealized depreciation was $80,000 and the net unrealized appreciation on
investments was $4,727,000.
See accompanying Notes to Financial Statements.
18
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TARGET EQUITY FUND--
KEMPER WORLDWIDE 2004 FUND
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper Target Equity Fund--Kemper
Worldwide 2004 Fund as of July 31, 1997 and June 30, 1997, and the related
statements of operations for the month ended July 31, 1997 and the year ended
June 30, 1997, and changes in net assets for the month ended July 31, 1997 and
for each of the two years in the period ended June 30, 1997, and the financial
highlights for each of the fiscal periods since 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of July
31, 1997 and June 30, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Target Equity Fund--Kemper Worldwide 2004 Fund at July 31, 1997 and June 30,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods referred to above in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 20, 1997
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at value
(Cost: $29,672 and $29,331, respectively) $35,350 34,058
- --------------------------------------------------------------------------------------------
Cash 62 610
- --------------------------------------------------------------------------------------------
Receivable for:
Investments sold 492 235
- --------------------------------------------------------------------------------------------
Dividends and interest 24 44
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 35,928 34,947
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------------------------
Payable for:
Investments purchased 106 45
- --------------------------------------------------------------------------------------------
Fund shares redeemed 34 79
- --------------------------------------------------------------------------------------------
Management fee 18 17
- --------------------------------------------------------------------------------------------
Administrative services fee 7 7
- --------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 33 28
- --------------------------------------------------------------------------------------------
Trustees' fees 5 5
- --------------------------------------------------------------------------------------------
Total liabilities 203 181
- --------------------------------------------------------------------------------------------
NET ASSETS $35,725 34,766
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------------------------
Paid-in capital $27,936 28,412
- --------------------------------------------------------------------------------------------
Undistributed net realized gain on investments and
foreign currency transactions 1,169 895
- --------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and
assets and liabilities in foreign currencies 5,666 4,722
- --------------------------------------------------------------------------------------------
Undistributed net investment income 954 737
- --------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $35,725 34,766
- --------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------------------------
SHARES OUTSTANDING 3,080 3,122
- --------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding) $11.60 11.13
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
20
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JULY 31, JUNE 30,
1997 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------
Interest $ 123 1,531
- -----------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $21 at June 30,
1997) 5 198
- -----------------------------------------------------------------------------------------------
Total investment income 128 1,729
- -----------------------------------------------------------------------------------------------
Expenses:
Management fee 18 215
- -----------------------------------------------------------------------------------------------
Administrative services fee 7 89
- -----------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 8 94
- -----------------------------------------------------------------------------------------------
Professional fees -- 9
- -----------------------------------------------------------------------------------------------
Reports to shareholders -- 5
- -----------------------------------------------------------------------------------------------
Trustees' fees and other -- 14
- -----------------------------------------------------------------------------------------------
Total expenses 33 426
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 95 1,303
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 396 1,096
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments
and assets and liabilities in foreign currencies 944 1,324
- -----------------------------------------------------------------------------------------------
Net gain on investments 1,340 2,420
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,435 3,723
- -----------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH
ENDED
JULY 31, YEAR ENDED JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
Net investment income $ 95 1,303 1,282
- --------------------------------------------------------------------------------------------------------
Net realized gain 396 1,096 1,486
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 944 1,324 507
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,435 3,723 3,275
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income -- (1,451) (1,157)
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (528) --
- --------------------------------------------------------------------------------------------------------
Total dividends to shareholders -- (1,979) (1,157)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (476) (4,796) 5,001
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 959 (3,052) 7,119
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 34,766 37,818 30,699
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $954, $737 and $827, respectively) $35,725 34,766 37,818
- --------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper Worldwide 2004 Fund (the Fund) is a series
THE FUND of Kemper Target Equity Fund (the Trust), an
open-end management investment company organized as
a business trust under the laws of Massachusetts.
The objectives of the Fund are to provide a
guaranteed return of investment on the Maturity
Date (November 15, 2004) to investors who reinvest
all dividends and hold their shares to the Maturity
Date, and to provide a total return, a combination
of capital growth and income. The Fund pursues its
objectives by investing a portion of its assets in
zero coupon U.S. Treasury obligations and the
balance of its assets primarily in an
internationally diversified portfolio of foreign
securities. The assurance that investors who
reinvest all dividends and hold their shares until
the Maturity Date will receive at least their
original investment on the Maturity Date is
provided by the principal amount of the zero coupon
U.S. Treasury obligations in the Fund's portfolio,
as well as by a guarantee from Zurich Kemper
Investments, Inc. (ZKI), the Fund's investment
manager.
In 1997, the Trust changed its fiscal year end from
June 30 to July 31. As a result, the financial
statements for the year ended June 30, 1997 and the
one month ended July 31, 1997 are presented
together in this report to shareholders.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Portfolio securities that are primarily
traded on a domestic securities exchange are valued
at the last sale price on that exchange or, if
there is no recent sale price available, at the
last current bid quotation. Portfolio securities
that are primarily traded on foreign securities
exchanges are generally valued at the preceding
closing values of such securities on their
respective exchanges where primarily traded. A
security that is listed or traded on more than one
exchange is valued at the quotation on the exchange
determined to be the primary market for such
security by the Board of Trustees or its delegates.
All other securities not so traded are valued at
the last current bid quotation if market quotations
are available. Fixed income securities are valued
by using market quotations, or independent pricing
services that use prices provided by market makers
or estimates of market values obtained from yield
data relating to instruments or securities with
similar characteristics. Equity options are valued
at the last sale price unless the bid price is
higher or the asked price is lower, in which event
such bid or asked price is used. Financial futures
and options thereon are valued at the settlement
price established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts and foreign currencies are
valued at the forward and current exchange rates,
respectively, prevailing on the day of valuation.
Other securities and assets are valued at fair
value as determined in good faith by the Board of
Trustees.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available,
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
the rates of exchange are determined in good faith
by the Board of Trustees. Income and expenses and
purchases and sales of investments are translated
into U.S. dollars at the rates of exchange
prevailing on the respective dates of such
transactions. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with the net realized and
unrealized gain (loss) on investments.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the Fund. Interest
income is recorded on the accrual basis and
includes discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
EXPENSES. Expenses arising in connection with a
series of the Trust are allocated to that series.
Other Trust expenses are allocated among the series
in proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares were sold during
a limited offering period which ended in 1996, and
are redeemed on a continuous basis. Fund shares
were sold and are redeemed at net asset value (plus
a commission on most sales). On each day the New
York Stock Exchange is open for trading, the net
asset value per share is determined as of the
earlier of 3:00 p.m. Chicago time or the close of
the Exchange by dividing the total value of the
Fund's investments and other assets, less
liabilities, by the number of shares outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Trust declares and
pays dividends of any net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The Trust has a management
AFFILIATES agreement with ZKI and the Fund pays a management
fee at an annual rate of .60% of average daily net
assets. The Fund incurred a management fee of
$18,000 for the one month period ended July 31,
1997 and $215,000 for the year ended June 30, 1997.
Zurich Investment Management Limited, an affiliate
of ZKI, serves as sub-adviser with respect to
foreign securities investments in the Fund, and is
paid by ZKI for its services.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Zurich
Kemper Distributors, Inc. (ZKDI) (formerly known as
Kemper Distributors, Inc.). For providing
information and administrative services to
shareholders, the Fund pays ZKDI a fee at an
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
annual rate of up to .25% of average daily net
assets. ZKDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. For the one month
period ended July 31, 1997 and the year ended June
30, 1997, the Fund paid administrative services
fees of $7,000 and $89,000, respectively, all of
which ZKDI remitted to financial services firms.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent for the Fund. For the one month
period ended July 31, 1997 and the year ended June
30, 1997, ZKSvC received shareholder services fees
of $2,000 and $36,000, respectively.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the one month period ended July 31, 1997, the
Fund made no payments to its officers or directors.
For the year ended June 30, 1997, the Fund made no
payments to its officers and incurred trustees'
fees of $9,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT Investment transactions (excluding short-term
TRANSACTIONS instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED
JULY 31, JUNE 30,
1997 1997
--------- ----------
<S> <C> <C>
Purchases $ 856 9,711
Proceeds from sales 2,183 15,583
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED YEAR ENDED
JULY 31, JUNE 30, JUNE 30,
1997 1997 1996
--------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold - $ -- -- $ -- 958 $ 9,921
--------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends - -- 192 1,997 108 1,110
--------------------------------------------------------------------------
Shares redeemed 42) (476) (637) (6,793) (581) (6,030)
--------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS 42) $(476) (445) $(4,796) 485 $ 5,001
--------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of particular foreign currencies against the
U.S. Dollar, the Fund has entered into forward
contracts to deliver foreign currency in exchange
for U.S. Dollars as described below. The Fund bears
the market risk that arises from changes in foreign
exchange rates, and accordingly, the net unrealized
gain (loss) on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk (which is limited to the
unrealized gain, if any) if the counterparty fails
to perform under the contract. At July 31, 1997 and
June 30, 1997, the Fund had the following forward
foreign currency contracts outstanding with
settlement dates in October 1997 and July 1997,
respectively:
FORWARD FOREIGN CURRENCY CONTRACTS AT JULY 31,
1997:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED
TO BE DELIVERED IN U.S. DOLLARS LOSS
----------------------------------------------------------------
<S> <C> <C> <C>
900,000 Dutch Guilders $ 435,000 $ (3,000)
--------------------------------------------------------------
1,600,000 French Francs 258,000 (1,000)
--------------------------------------------------------------
225,000 German Marks 123,000 (1,000)
--------------------------------------------------------------
160,000 Irish Punts 233,000 --
--------------------------------------------------------------
25,000,000 Spanish Pesetas 161,000 (1,000)
--------------------------------------------------------------
600,000 Swiss Francs 398,000 (2,000)
--------------------------------------------------------------
Net unrealized loss $ (8,000)
--------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS AT JUNE 30, 1997:
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED
TO BE DELIVERED IN U.S. DOLLARS GAIN (LOSS)
----------------------------------------------------------------
<S> <C> <C> <C>
2,400,000 Dutch Guilders $1,241,000 $ 14,000
--------------------------------------------------------------
2,650,000 French Francs 458,000 6,000
--------------------------------------------------------------
400,000 German Marks 233,000 3,000
--------------------------------------------------------------
295,000 Irish Punts 438,000 (7,000)
--------------------------------------------------------------
24,000,000 Japanese Yen 193,000 (18,000)
--------------------------------------------------------------
33,200,000 Spanish Pesetas 227,000 1,000
--------------------------------------------------------------
1,340,000 Swiss Francs 920,000 (2,000)
--------------------------------------------------------------
Net unrealized loss $ (3,000)
--------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ONE MONTH
ENDED YEAR ENDED JUNE 30,
JULY 31, ------------------------ MAY 3 TO
1997 1997 1996 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.13 10.60 9.96 9.02 9.00
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .42 .36 .27 .02
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain .44 .71 .63 .79 --
- --------------------------------------------------------------------------------------------------
Total from investment operations .47 1.13 .99 1.06 .02
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .44 .35 .12 --
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .16 -- -- --
- --------------------------------------------------------------------------------------------------
Total dividends -- .60 .35 .12 --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $11.60 11.13 10.60 9.96 9.02
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.22% 11.08 10.05 11.91 .22
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.12% 1.19 1.32 1.29 1.32
- --------------------------------------------------------------------------------------------------
Net investment income 3.20% 3.63 3.60 3.77 2.59
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $35,725 34,766 37,818 30,699 5,900
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 30% 25 50 75 --
- --------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the one month period ended July 31,
1997 and the years ended June 30, 1997 and June 30, 1996 were $.0385, $.0209 and $.0253, respectively.
Foreign commissions usually are lower than U.S. commissions when expressed as cents per share due to
the lower per share price of many non-U.S. securities.
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS TRACY M. CHESTER
President and Trustee Vice President
JAMES E. AKINS CHARLES R. MANZONI, JR.
Trustee Vice President
ARTHUR R. GOTTSCHALK JOHN E. NEAL
Trustee Vice President
FREDERICK T. KELSEY STEVEN H. REYNOLDS
Trustee Vice President
FRED B. RENWICK PHILIP J. COLLORA
Trustee Vice President and Secretary
JOHN B. TINGLEFF JEROME L. DUFFY
Trustee Treasurer
JOHN G. WEITHERS ELIZABETH C. WERTH
Trustee Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Tech Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
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Printed on recycled paper.
KWF-2 (8/97) 1036870
Printed in the U.S.A. [KEMPER LOGO]
